The government will start disbursing the revised allowances as per the Seventh Pay Commission award to over 4.9 million central government employees from next month. The revised allowance will also include house rent (HRA) allowance beginning July, a report in the Finance Express said today.
According to the report citing sources, the HRA in cities with more than 5 million population is likely to be 27% of the basic pay. Though this is lower than the existing rate, which stands at 30 percent of the old basic salary, after taking into account the 23.55 percent rise in salary, as per the Seventh Pay Commission, the increase in absolute terms will be higher, the report says. This is also higher than 24 percent recommended by the pay panel.
According to the report, Cabinet approval for the revised allowances is likely only after later this month.
If the allowances are revised next month, it will give a boost to the consumption demand in the economy. As per the GDP data for January-March, private consumption expenditure or household expenses during the quarter had taken a hit due to demonetisation.
However, this also comes with a concern - of acceleration in inflation. In its second bimonthly monetary policy statement on Wednesday, the Reserve Bank of India highlighted this concerns saying improved spending could push up inflation.
The Central Bank sees retail inflation to be in the range of 2-3.5 percent in the first half of current fiscal (FY18) and could rise further to 3.5-4.5 percent band in the remaining part.
The delay in disbursal of allowances helped the government save Rs 2,200 crore per month while cumulative saving Rs 40,000 crore since 1 January last year, the FE report said.
The government had set up a high-level committee headed by Finance Secretary Ashok Lavasa to study and recommend the allowances for the central government staff after the Seventh Pay Commission.
The panel was asked to examine the 7th Pay Commission's recommendation to abolish 53 allowances out of a total of 196 and subsume another 36 into larger existing ones. The Lavasa committee had sought comments from the ministries of defence, railways and posts on treatment of 14 allowances.
Sources said these 14 allowances had not been factored in previously and the concerned ministries have been asked to give their views on what is to be done with them.
These allowances include accidental allowance, outstation detention allowance, trip allowance, and ghat allowance.
Updated Date: Jun 09, 2017 15:18 PM